Reverse Engineering the Perfect Ecommerce Product

Inside the box below is the perfect ecommerce product. It’s perfect in every way and guaranteed to make you millions of dollars. Curious what it is?

The Perfect Ecommerce Product

Are you ready? Let’s learn more about this perfect product:

This product has a large, growing market with little competition and a substantial, validated user base. It is not available locally, and only available online.

It has a market validated selling price of $100 and you can purchase it from several trusted manufacturers in China for under $10 per unit.

Luckily, it won’t perish over time, but it is consumable. Consumers love it because it solves a huge pain point for them. Since it’s consumable and in high demand, consumers are inclined to maintain a monthly subscription so they can automatically repurchase this product.

Order fulfillment is never a headache because it’s so small. It hardly takes up even half a pallet of storage space so storage at your fulfillment warehouse costs next to nothing. In addition, because it is so small and lightweight you can easily cover the shipping cost in your selling price and remove one of the biggest reasons for shopping cart abandonment. Score!

Inventory ordering of this product is easy to manage because it doesn’t have any variations, so you only have to manage and order one product SKU from your supplier every month. Because you only have one SKU, there will be very few mix-ups when shipping to your customers, so returns will be minimal as well. It also helps that it is very durable so it isn’t likely to get broken or damaged in transit.

The target consumers for this product are very comfortable making purchases online. Most of the target customer base is over the age of 18 with a credit card and disposable income so selling it online is a breeze. Revenues will be steady year round because this product doesn’t suffer from seasonality issues.

As you may have guessed by now, this product doesn’t really exist. These are all examples of what criteria makes up a product perfect to sell online, but it’s rare that a single product actually possesses each of these criteria.

So maybe I don’t have the perfect product for you if you’re on the quest to figure out what to sell online but I have reversed engineered the perfect product for you below. Read on.

What to Sell Online

I remember my very first conversation about building ecommerce businesses: It was during Christmas break 3 years ago, where I had flown back to my hometown of Toronto. On a slow night, I decided to go meet up with an old acquaintance for coffee. Our topic of discussion turned to a close friend’s ecommerce business, Luxy Hair, which was doing extremely well. After just a year and a half, Luxy had a cult following of a few hundred thousand YouTube subscribers and Facebook fans. We spent the next few hours picking apart the details of the business and what attributed to their success. That night, I walked away with a valuable list of several things they did really well and more importantly, several things that made their product a perfect fit for a lifestyle ecommerce business.

Over the next few years, I further cultivated that list of criteria for finding and choosing a product with the greater likelihood of success in ecommerce. After 3 years of development and analysis, I am really proud to be able to share my guide to reverse engineering the perfect ecommerce product with you.

In your search to figure out what to sell online, you may never find a product that matches all the criteria I have detailed below, but this ecommerce product guide will help you organize the logic around your product idea and help you better evaluate its potential successes and pitfalls. This is a checklist I use to evaluate every new product idea I have before I get too excited about it.

Reverse Engineering the Perfect Ecommerce Product

1. Potential Market Size

Choose a product that has a large potential market. Try to avoid products that are a subset of a subset of a market. For example, a product that caters to females between the ages of 25-40 years old has the likelihood of having a well-sized target market, but a product that caters to pregnant females between the ages of 25-40 years old who only wear gothic clothing, may be too narrow. You want to try to have the biggest market possible. Of course, this isn’t always the case and unique products with a small target market can be successful, but it’s harder and more expensive to reach those customers.

Example:Daneson are purveyors of fine, luxury toothpicks… wait, what?! I don’t think I need to go into much detail as to why this might be a difficult market to find customers. One can only assume that the market size is very small and trying to find those buyers might end up being very costly. On the flip side, I’m sure there aren’t too many players in this market, so those that are looking for high-end toothpicks (mob bosses, oil tycoons, Texans…) are likely to come across Daneson with a simple Google search.

2. Competition

Strong, light or no competition? Strong competition is not necessarily a bad thing. Strong competition can serve as a signal that the market has been validated, but as a new entrant into the game, you will have to do something different if you plan to take some market share.

Example 1: When DodoCase started, they were well aware of the very crowded and competitive market they were entering. In the few short years they have been around, they have soared to become one of the most notable and respected iPad cases on the market. In fact, they won Shopify’s Build-a-Business Contest that netted them $100,000 cash. They achieved this feat with a unique design and well executed handmade manufacturing. It was all about quality in a market flooded with cheap, Made-in-China plastic alternatives.

Example 2: When Beba Bean started their company 7 years ago they created their own product and niche, so they had no competition to contend with. Their core product, the “Pee Pee TeePee, for the sprinkling wee wee” is a flannel cone they invented that keeps parents dry while changing their newborn sons. They have sold over 3 million dollars in Pee Pee TeePee’s with $800,000 of that being in the last year. A very impressive lifestyle business for many reasons.

3. A Trend, Fad or Growing Market

It’s always important not to get caught up in a fad or short-term trend. Although something may be good for a while, it needs to have long-term sustainability to be successful. Make sure to check out Google Trends to get a better understanding of search history for your potential product. It will help you determine if your potential product is on a decline, holding steady, or in a growing market.

Example: I was doing research for a potential new tablet stylus product. It took 2 minutes to do a few searches on Google Trends to validate the obvious about the tablet market. Huge growth! With a few more searches I was able to determine that the use of styluses for tablets was also on an upward swing after dying a horrible death many years ago during the Palm Pilot days. Of course, there are other ways you are going to want to validate this, but Google Trends is the quickest and easiest place to start.

4. Limited Local Availability

Have you ever tried to find magician supplies? What about left-handed specialty items like scissors? Specialty products like these have a market but they are usually geographically fragmented making them a terrible business for a physical storefront but perfect for ecommerce. I have 2 examples for this one:

Example 1:Ellusionist is a really cool ecommerce site that sells high-end decks of cards. It’s a unique niche market and they have done a great job with the products they offer, as well as offering value and content through teaching and training of card tricks and street magic. Take a look at their products; you can probably imagine that you’re going to be hard-pressed to find anything similar locally.

Example 2: It’s not just about niche products, it can even be niche variations of products. For example, I now buy all my supplements from Supplements Canada because GNC’s in Canada stopped carrying my favorite (more unique) flavors of protein powder. It’s a prime example of something that wasn’t easily available locally so I switched my buying behavior. As a by-product, I began buying all my supplements from them because it was easier.

5. Target Customer

Make a quick list of your major target customers. If you are selling a product that caters to young teenage boys or girls, consider the fact that they don’t have credit cards. Does your product serve the seniors market? Many are still not computer savvy and are adverse to entering their credit card details online. For most target markets you’re going to be OK to sell online, but it’s worth thinking about.

Example:Clothes For Seniors sells adaptive clothing to seniors that make it easier for seniors to dress when they have medical issues like arthritis. They have several target markets but consider the primary one: Seniors themselves. Many seniors don’t have computers and there is still a huge resistance among those who do to actually enter credit card information online.

6. Markup

Markup is important. There are lots of little fees that will eat away at your profit margins, so you need to be able to cover those costs and still make a decent profit. It has been recommended by other professionals that you choose a product with a minimum of 5-10x markup. At first, I thought this was impossible, but it’s not. Those products exist. If you do choose a product with a lower markup, just be aware of all other fees involved in selling that product to make sure there is still a healthy profit to be made.

Example: Two years ago I noticed there was a trend in some European countries for a line of colorful, eco-friendly silicone belts. The buckles were interchangeable so you could mix and match the belts and buckles to create your own look. I questioned if it would have the same appeal in North America. Before I went too far, I did some quick costing calculations to see what type of margins I could get on it. Although the product was selling for upwards of $50 (USD) in Europe, I felt the highest price the market would bear in North America would be $24.99. After checking out a few manufacturers on Alibaba, it seems like I could get the product for about $2/unit. Wow! Over 10x markup!

Based on that information and a few other numbers I already had, I completed the spreadsheet below.

As you can see from the spreadsheet, a product that seems to have markup promise at a cost of only $2 really doesn’t even come close once all other costs are factored in. In this situation, I choose not to pursue this product to sell. The fact of the matter is, the potential selling price was just too low. All the small costs eat away at your margin and leave you with such a small profit per unit that you would have to move a ton of product to make it worthwhile, in my opinion. This leads perfectly into the next criteria…

7. Selling Price

Your best bet is a product that can be retailed for between $75-$150. The reason behind this is if you sell your product for less than that, you need to sell more units (and find more customers) to generate a good profit. If you sell for too much your potential customers will have too many questions as they might be wary about spending that much, or spending that much online without actually being able to touch the final product. In addition, people will typically have more questions the more they spend. You want to try to limit the amount of time you spend on the business and not be bogged down with customer questions and providing too much costly customer support.

Example: Let’s say we switch the product in the previous example to a new product called “Product X.” Let’s say Product X has a possible selling price of $100 (4x more than the belt). I have also multiplied the other appropriate cost by a factor of 4x to be consistent. Because of the selling price we have much better margins 73% as oppose to 42%. Our profit per unit skyrockets from $12.95 to $76.75, 592% greater.

8. Limited SKU’s (# of Products & Variations)

You don’t want to have to carry an inventory of a product that has 50 different sizes and color combinations, nor do you want to be selling hundreds or even dozens of different products. First, it’s going to cost you way too much to purchase your initial stock, which is risky. Second, you will have to pay for storage in your warehouse based on the amount of space your products require. Third, things start to get too confusing and complicated trying to manage inventory for many products and it increases the chances of customers getting wrong versions, sizes, colors etc that will end up costing you time and money to correct. Ideally, you want a product that has no more than 15-20 Stock Keeping Units (SKUs). Keep it simple and help your customers decide by limiting the choices for them. Less is more.

Example 1:MorningHead is a brilliant and simple product I just came across. It’s basically a shower cap with an absorbent material inside. You fill it with 1 cup of water, place it over your head and rub it around. Bam! Bedhead is fixed and you can now style your hair. Any guys with short hair out there know how frustrating this is in the morning when you are in a rush, so it solves a big pain point with a very simple product. The best thing about MorningHead is that it’s one size, so 1 SKU. Easy to manage.

9. Subscriptions

Does your product idea have a shelf life or is it consumable? Acquiring new customers can be difficult, time-consuming and expensive. Selling multiple times to the same customer, especially automatically, is a great model for ecommerce.

There are two types of subscription-based ecommerce businesses: Discovery and replenishment. Think about which one would best fit your product idea.

Example 1:DollarShaveClub.com is a great example of a “replenishment” subscription model. Choose one of 3 shaving blades and they will automatically send you a new set of blades every month.

Example 2: Companies like Birchbox have built their business model around the idea of a “discovery” subscription model. Every month they send you a box filled with samples of some top of the line beauty items. If you like what you receive, you can buy the full sized version from their website.

10. Product Size & Weight

More and more consumers expect free shipping. Shipping rates also are one of the biggest reasons for shopping cart abandonment (Read my blog post: The Rising Rate of E-commerce Cart Abandonment Rate). Obviously, product size and weight determine the shipping cost so you always have to consider this when looking at products. This will also increase your warehousing costs, so keep that in mind.

Example:Square36 sells oversized yoga mats. Consider the size and cost of shipping an oversized rubber mat. They pass the shipping costs onto the customer at $25 shipping in the USA and $40 to Canada. You can easily see how some people may be reluctant to purchase the mat when shipping increases the price by an extra 25-40%. Regardless of size and weight, according to a blog interview post with Tim Ferris (@TFerris) they are currently doing $10,000 – $25,000 per month in revenue.

11. Durability & Breakability

Is your product durable or fragile? Consider that the more fragile the product is the greater the chance of your product being damaged during shipping. Even if it is the shipping company’s fault, it’s ultimately your customer who has to deal with the broken product and it’s part of your customer’s overall experience with your business and product. Highly breakable/fragile products are going to increase the number of returns/exchanges and the overall amount of time you spend dealing with customer issues.

Example:Play Lashes sells handmade, luxury false eyelashes. When I interviewed them, we discussed the fact that being handmade, and the fact they are eyelashes, they are fragile. Occasionally they have had a customer, anxious to try them out, that peels them off their plastic setting too fast and ends up ripping them. They also mentioned that when they first started they ordered 100 pairs from their warehouse. When it arrived, the box had been visibly damaged. When they opened it up almost all 100 pairs were damaged. The hard plastic cases they were in shattered on most. They lost almost $2,500 in product inventory. They have now worked out a deal with their fulfillment warehouse to wrap them in bubble wrap and since haven’t had any more issues but it goes to show you, fragility can bring up issues you didn’t expect if you don’t plan ahead.

Image of Play Lashes’ broken shipment:

12. Seasonality

Is the product/market seasonal? It’s important to take note of and be prepared for seasonal revenue swings. Seasonality can have a big impact on cash flow and business viability. Once again, you can use Google Trends to look for swings in searches for your product/niche idea.

Example: The Omega Christmas Tree Stand was featured on the Dragon’s Den (the Canadian version of Shark Tank). Although maybe a great product, it’s seasonality definitely limits its revenue potential in a huge way.

13. Customers with a Passion or Problem

Does your potential product solve a problem, alleviate a pain or fall within a category of products consumers are passionate about? Tylenol is an easy sell when someone has a headache and when someone is passionate about something they will spend ungodly amounts of money to support their passion. A good example of this is sports and outdoor enthusiasts like hikers, rock climbers and mountain bikers.

Example: I met JP through Twitter who owns Pro Teeth Guard (custom teeth guards to prevent teeth grinding at night). I interviewed him a few weeks back and, like he mentioned, it’s a much easier sell when someone is actually in pain and you have a product to relieve that pain. They are much more likely to seek you out instead of you having to find them.

14. Low Product Turnover

If your product line is constantly changing year to year, you’ll end up spending valuable time on resources that will soon be outdated. Selling a product line with limited turnover ensures you can invest in an information-rich website that will be applicable for years.

Example: Luxy Hair once again is a great example of a product line with low turnover — actually, no turnover. They have two weights of hair extensions and 11 colors for each weight. Their product line never has to change, it’s always constant.

15. Consumable or Disposable

Repeat customers are essential to any business, and it’s MUCH easier to sell to existing customers who trust you rather than to new prospects. If your product needs to be re-ordered on a regular basis – and you’re able to keep your customers happy – you’ll be on your way to building a profitable business with recurring revenue.

Example: Manpacks.com was an ecommerce business based on consumable/disposable products and subscription. By selling things like condoms, razors, socks and underwear, they could turn a single order into multiple and ongoing orders.

16. Perishability

It goes without saying that selling a perishable product is risky. If your sales goals fall short, you run the risk of losing expensive inventory. If perishability is enhanced or affected by temperature, this is something you will need to consider for transportation and warehousing and usually costs a premium.

Example 1: Yummy Tummy Soup Company was based out of Toronto and sold freshly made, home-style soup, baked goods and desserts. Everything was made daily, packaged up and shipped out. I actually had their products before and I must admit, they were really good. But as a business model, I would be hesitant, especially as a lifestyle business because it requires you to be working daily and does not allow time and location freedom.

Example 2: ECreamery took an extremely perishable product, ice cream and against all odds decided to sell it through an ecommerce channel. 4 pints of ice cream from them costs $80 plus $25 shipping. How are orders of ice cream shipped? In a cooler with dry ice. I can’t imagine a bigger headache for an ecommerce business.

17. Restrictions & Regulations

Restrictions and regulations suck but they are in place for a reason. Before you go ahead and purchase inventory for any product, make sure you talk to your shipping company, customs broker, and your warehouse to make sure there are no restrictions or regulations on your product. Being unprepared for this can end up being stressful, time-consuming and expensive.

Example: When Silky Polish started, they were psyched about their product and niche. They spent countless hours finding the right product and manufacturer and testing dozens of samples. They were all ready to go and have their first order from their manufacture delivered to their fulfillment warehouse until they got the bad news. Nail polish has active chemicals in it and is considered “Hazmat” — hazardous material — which caused issues with their selected fulfillment warehouse storing it. They also had issues when it came to shipping to customers, as Hazmat products cannot be shipped by air transit, so they were limited to ground shipping to customers, preventing international sales.

18. Video Marketing

As a digital marketer, you cannot deny how powerful video is. From the Kony 2012 video that rocked, then immediately shocked the world, to Psy’s Gangnam Style music video hitting 1 billion views, video has proven many times over it has the power to spread and deliver a more authentic, personal story that can’t necessarily be done through pictures and text. YouTube is one of the, if not the largest, untapped marketing source that currently exists.

I really do consider this a bonus criterion and, arguably, my friends in digital video production and strategy would probably say that every product, business and brand can have a video strategy but for me, it’s about finding a video strategy I can believe and achieve myself.

I’ve watched several businesses explode and become the market leaders in their category very quickly because they were the ones that had a YouTube video strategy and executed it well.

Example: When Luxy Hair began selling their hair extensions, they knew YouTube was going to be their prime marketing channel and the way they would differentiate themselves in the market. They began creating value by using their product in video hair tutorials once a week. In fact, many of the tutorials didn’t even require a need for hair extensions so they were still relevant to non-extension wearers as well. This value-based video content strategy has paid off in huge ways: In a little over 2 years they were one of the most watched channels in North America and boasted over 655,000 subscribers. At present, another three years later, their video marketing strategy is still going strong as they continue to market and sell their product to their subscriber list of nearly 3 million viewers with over 350 million total video views.

Dollar Shave Club didn’t have an ongoing video strategy like Luxy Hair but as a bootstrapped startup they understood the power of video and put together a video on a budget that was one of the most viewed videos of 2012. Currently, it has been watched over 23 million times. Watch it below:

Epic Meal Time has also done a great job with their video strategy. They began by creating obnoxious recipes that became such a hit on YouTube they have now turned it into a business selling merchandise and using their video content to drive sales. The Epic Meal Time YouTube channel currently has over 7 million subscribers.

Conclusion

Once again I want to reiterate that the purpose of this evaluation is not to try to find an ecommerce product that fits into as many categories as possible. It’s about organizing your thoughts around some key success points and bringing to the surface some information you may not have thought about when figuring out what to sell online. Sometimes when you get excited about something it’s easy to overlook potential pitfalls. Hopefully, with this list, you will be able to evaluate potential products and niches more efficiently and increase your overall chances of success.